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2 FTSE 100 value shares I’d buy, and 1 I’d avoid!

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I’m building a list of the best FTSE 100 value shares to buy for my portfolio. I’m looking for companies that trade on low price-to-earnings (P/E) ratios and carry dividends above the 3.7% average.

Here are three that have caught my eye recently. Which stocks should I buy and, which ones should I avoid like the plague?

The following earnings multiples and dividend yields are based on broker projections for the current financial year.

DS Smith

Dividend yield: 8.7 times

P/E ratio: 6%

A massive cardboard shortage is sending earnings at DS Smith (LSE:SMDS) through the roof. Sales and profits at the boxmaker jumped 11% and 75% in the 12 months to April, driven by sizeable price hikes across its packaging product portfolio.

There’s good reason to expect the bottom line to keep shooting higher too. It has the scale and the expertise to exploit rapid growth in the global e-commerce and fast-moving consumer goods (FCMG) sectors. The company counts Amazon and Tesco among its large number of huge and loyal clients.

While acquisitions can be dangerous for a business, DS Smith has a long history of success on this front. A strong balance sheet means it has the firepower to continue making earnings-boosting M&A moves, too.


Dividend yield: 11.6 times

P/E ratio: 4.3%

Several shares in my portfolio (including DS Smith) give me exposure to the growing e-commerce sector. As the UK’s biggest online grocery operator Tesco (LSE:TSCO) is another stock I’m looking at today.

Internet-generated supermarket sales have lagged the growth seen across the broader retail arena in recent years. But this provides room for spectacular growth as consumer habits change. Consultancy Strategy& predicts that e-grocery could make up 26% of all food shopping by 2030. That’s up from 11% today.

But despite this bright outlook I’m not tempted to buy Tesco shares today. I don’t like the fierce price wars it’s locked into, led by the value chains Aldi and Lidl as they expand their store estates. Rising online competition is another major worry for me.

Profit margins are wafer thin at supermarkets. Tesco’s adjusted operating margin fell to just 3.8% last year. As discounting heats up and costs rise this gives little scope for profits growth.


Dividend yield: 9.3 times

P/E ratio: 4.2%

I think buying GSK (LSE:GSK) shares is a much better way to use my hard-earned cash. I expect demand for its drugs to march higher amid rapid population growth and soaring healthcare spending in emerging markets.

The FTSE firm is focused on fast-growing therapy areas to drive profits as well, a strategy that is paying off. Sales of its vaccines for example rose 15% (excluding Covid-19 products) in quarter two, driven by strong demand for its Shingrix shingles treatment.

GSK needs to work extremely hard to improve its underwhelming product pipeline. But the company’s excellent R&D track record leads me to think it has what it takes to develop the next generation of blockbuster drugs.

The post 2 FTSE 100 value shares I’d buy, and 1 I’d avoid! appeared first on The Motley Fool UK.

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More reading

  • Here’s 1 cheap FTSE 100 stock to buy for returns and growth
  • 2 bargain FTSE 100 stocks I’d buy this August!
  • How much could £1,000 in Tesco shares be worth in 3 years?
  • Why now could be the time to buy dirt cheap GSK shares!
  • Is this 4% dividend-yielding stock ideal for passive income?

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has positions in DS Smith. The Motley Fool UK has recommended, DS Smith, GSK, and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.